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The former UBS banker talks about his solo venture to create BTG, a Brazilian trading house-cum-merchant bank based in São Paulo.

André Esteves, captain of the new global trading house-cum-merchant bank BTG, headquartered in the improbable setting of São Paulo, ducks his head into the room on the top floor of the swish, if bland, office building in São Paulos main business district. He is here to apologise for being late (by 36 minutes), but promises to be right back. By the time he strides back in, grinning, he has shaken hands on a deal to buy a chain of Brazilian gas stations.

Speed and an eye for opportunity have marked out Mr Esteves. He is one of the best known figures on the Brazilian investment scene, with a meteoric career and youth on his side (he is not yet 40). He worked his way up the ranks at Brazils quintessential high-octane trading house Pactual. Swiss bank UBS bought that operation in 2006 and quickly appointed him head of global fixed-income sales and trading.

New venture
Mr Esteves new venture is BTG, headquarted in São Paulo and with offices in Rio de Janeiro, New York, London and Hong Kong. His vision is to create a mid-sized, global investment house and a merchant bank and advisory business. The second part will come later as BTG has a non-compete clause with UBS that prevents it from operating as a merchant bank until June 2009 in the world excluding Brazil, and until June 2011 within Brazil.

BTG will essentially be an opportunistic investor, arriving as the industry faces change and scrutiny. Large firms in the financial industry will be ever-more regulated and controlled  which opens up space for mid-sized, global investment firms of quality to be more nimble, affirms Mr Esteves.

BTG is starting with two funds. The global emerging markets fund will be open to ideas anywhere in the world with an emphasis on developing markets. Mr Esteves is aiming to staff it generously with analysts, believing that skimping on staff is a common mistake for funds such as his. You cant research everything from Indonesian private equity to Mexican credit markets with a couple of analysts out of London, he says. The second fund is a Brazilian asset-backed fund.

In three to five years, he envisages BTG will have a more complete range of strategies with a diversified family of products linked to absolute returns. Clearly, it is a brave time to be launching a fund business. The past 12 months have impacted negatively upon Brazils fledgling funds and many managers have fallen victim. With risk-free returns in Brazil well into double digits due to a base rate of 13.75%, most have suffered debilitating outflows of as much as 90%.

Proprietary money
Most Brazilian hedge funds are completely dependent on third-party money, points out Mr Esteves. The key difference with BTG is the sheer volume of proprietary money. Partners will commit $600m immediately and 23 partners have promised $2bn over the next two years, he says.

Even though it does not depend on outside money, BTG will need external clients to build up its size and sustain its staff. The firm will offer open funds and tailored funds for institutional investors. Mr Esteves has also reached a distribution agreement with his former employer UBS in return for some revenue sharing. To ensure full alignment of interests, BTG will invest proprietary and third-party funds as similarly as mandates allow, he says.

Proven track record
Mr Esteves asserts that investors will like the track record of the team. He has re-assembled many of the people from Pactual, including the heads of fixed-income, currency and equities.

At Pactual from 1998, the team made money each quarter through the series of emerging markets crises because of strict risk control, diversification and a lot of short-term trading, he says. He has also brought on board professionals from UBS who will cover European and Asian emerging markets, US rates and quant strategies. Finally, he has employed strategic thinkers including Pérsio Arida, former central bank governor and former head of development bank BNDES.

Risk control and diversification will be key, says Mr Esteves. He believes that many managers did not buck the down market because of a focus on beta rather than on alpha diversification. BTG will look for alpha across asset class and geography. To limit risk, the firm operates on a team basis. We will not just throw funds at a star manager. We work with teams operating with controlled amounts of money across a diversified range of products, he says.

Value target Initially, at least, BTG leans towards value and will also look at distressed assets, picking cheap assets across industries and picking up real assets at the moment companies are paying a premium for liquidity.

The current environment is not conducive to focusing on any one industry or asset class. Mr Esteves will be keeping a careful eye on valuations, firmly believing that market bubbles form as investors chase the same idea, driving valuations to unrealistic highs.

It is easy to understand Warren Buffetts investment techniques. It is a different matter to emulate them, he says.

CAREER HISTORY: ANDRÉ ESTEVES

2008 formed BTG
2007 appointed global head of fixed income, commodities and currencies (FICC) at UBS
2007 in addition to his role as head of Pactual, appointed global head of fixed income for UBS in August
2006 Banco Pactual sold to UBS; appointed chairman and CEO of UBS Pactual, a position he held until leaving the bank in 2008
2003 a director of Febraban (Federation of Brazilian Banks) from 2003 to 2007
2002 appointed member of the board of Bolsa de Mercadorias e Futuros (Futures and Commodities Exchange) from 2002 to 2006
2002 appointed a managing partner of Banco Pactual
1993 appointed a partner at Banco Pactual
1989 Joins Banco Pactual